Have you ever been in a situation where its the middle of the month and you take a peak into your bank account or wallet and thought to yourself “where the hell did my money go”? It used to happen to me, alot. It almost felt like there was more month than money! The crazy part is that I really didn’t know where my money was going, I had a general idea…like “yeah I have to pay rent, utilities, go out to dinner” and other stuff but I couldnt tell you with any level of confidence how many digital subscriptions I had, how much I spent in gas, or even how much I spent eating out each month. Does this sound like you?
My answer to this dilemma was to create a “zero based budget” which is just a fancy way of creating a personal budget where you allocate every dollar to a category before the start of the month so you have “zero dollars” uncategorized once the month starts. The categories don’t really matter, you can have a vacation category, a fun money category, or even a pet category! What’s important is that by creating a budget where you allocate your money to a category before the start of the month, you are in effect telling your money what to do. In December 2018 I published my January 2019 under the article “How to create a personal budget if you make over $100k a year”. It was how I allocated my anticipated monthly income of ~$16,000 a month into a zero-based budget. Check it out below.
The article got a lot of attention, I guess there are quite a few “high-income earners” who need help making a budget, and that’s ok because this stuff wasn’t taught to us in school! Now is the time to become the master of your destiny! Personally, a zero based budget gave me the freedom to tell my money what to do and enabled me to celebrate the small cash-flow victories like bringing home a little north of $18,000 last month instead of $16,000. That nice bump went directly to my wedding budget. I’ve decided to publish my February 2019 zero-based budget which is outlined below. It follows the same philosophies of “allocating every dollar to a budget” and the best part is that it works for all income ranges regardless if you make $1,6000 a month or $160,000! Let’s walk through the process below.
February 2019 zero-based budget overview
I’m projecting somewhere around $16,000 of incoming this month which is actually about $10,000 less than I thought i’d earn for February 2019. This is disappointing because in my $170,000 student loan debt payoff journey I anticipated making a $12,050 student loan payment this month. Unfortunately, the deal I’m working on which would produce this additional income has hit a snag which will delay the payment 30 to 60 days, so stay tuned. With that in mind, I’ve paired down my student loan payment from $12,050 to $2,002, the minimum required payment for my loan which is currently on a 10-year standard payment plan. I’ve also increased my ‘life’ budget from 15% in January to 26% in February as a result of a chiropractor referral related to Active Release Therapy as well as a commerical real estate class i’m exploring. To accommodate the ‘life’ increase, I’ve decreased this month’s wedding budget from 44% of my anticipated income to just 36%. All other budget allocations remain unchanged and are outlined below.
Here’s a breakdown of the budget from the 1st to the 15th and 16th to 28th. The reason for this “two-date range breakdown” is because my earnings & paycheck are paid bi-monthly and each bill needs to be allocated to a paycheck. If you get paid weekly, then you would have 4 columns: one for each week and in turn you would allocate all of your bills to one of the 4 columns.
One aspect of this budget that I like to share is that once I’ve hit my $80,000 wedding budget and paid off my student loan debt, I will have over $8,000 a month in free cash flow that can be allocated to saving, investing and wealth creation. Another way of looking at this is with the realization that I’m living off of just 51% of my post-tax income in February. Wow! Can you live off of 50% of your post-tax income? What about 70%? Give it a try with a zero-based budget and you might be surprised. Per the usual, we follow the 4 rules of zero-based personal budgets with the creation of this month’s budget:
1. Know every expense.
2. Know the due date of each expense.
3. Every dollar has a budget.
4. Pay your bills with your debit card.
February 2019 detailed budget
Let’s dive into the details of what a zero-based personal budget looks like. The good news? It’s not that complicated, and the process to create one is really straight forward, just list each paycheck at the top of the paper. Then once you’ve figured out the due date of each bill (rule #2!), add it to applicable paycheck column until your remaining balance for that paycheck (income – expenses) is zero. Make sure to include your fun money (valentines day is this month fellas!), a zero-based budget should include every you need to pay for that month, inclusive of all recreational activities!
For February 2019, i’m going to receive approximately $16,000 across 2 pay paychecks, this means I’ll have 2 columns in my zero-based personal budget, as outlined below. If you get paid once a month, then you’d only have 1 column and if you get paid weekly, then the number of columns you have would be dependent on the number of weeks in the month. Column 1 says “I will receive $8,793.15 on the 1st which will pay for all bills due on the 1st to the 15th”. Column 2 says “I will receive $7,620 on the 16th which will pay for all bills due on the 16th to the 28th”.
My expenses will all be allocated into one of the two columns:
Column 1 - expenses paid between the 1st and the 15th
Column 2 - expenses paid between the 16th and the 28th
I have $170,000 of student loan debt. Yuck. My minimum student loan repayments on a 10-year standard payment plan is $2,002 dollars a month. It’s terrible. The good news is that I have a plan to pay off $170,000 of student loan debt by the end of 2019 via a series of additional principal only payments. With my wedding now fully funded, starting in March 2019 we can expect to see minimum student loan payments in the realm of $7,000 to $20,000 a month. Yikes! This month, my student loan payment of $2,002 represents approximately 12% of my February 2019 income.
My housing expenses went from 14% of my monthly income to approximately 18% this month, primarily due to an increase in utilities which includes electricity, water, sewer, and garbage. My utilities actually went up a whopping $200 to approximately $300 this month as a result of increased electricity usage! Yikes. Electricity is expensive, and in San Francisco residential electricity rates run at approximately 21 cents to 28 cents per kilowatt! Buyer beware, if you want to learn how to calculate your electricity costs, check out my article below. For March 2019, i’ve set a target to keep electricity costs under $200/month. All in, my housing costs respresent 18% of my february 2019 budget with rent accounting for 14%.
The insurance category includes all insurance types with the exception of health insurance. My rationale for excluding health insurance is that although it is paid for with post-tax dollars, it is deducted from my paycheck before deposited into my account. It is possible to make a case to include it in your personal budget, but at the very minimum, you should know how much your health insurance costs you on a monthly or annualized basis. If i were to include personal health insurance, it would be an additional $105 per month or $52.50 per pay period. For February 2019, my car and renters insurance account for approximately 0.82% of my this month’s personal budget.
Pet insurance has always been a huge variable for me. I have 2 french bulldogs and unfortunately, they have a predisposition to a variety of health challenges. Last month I allocated almost $1,000 for visits related to dermatologists and neurologists and in December one of my frenchies had a $13,000 ER visit. The good news is that I’ve had pet insurance on both animals since they were puppies, which unfortunately has increased every six months, and now I pay approximately $200 a month to ensure both animals at a 90% coverage rate with a $100 annual deductible. Despite the high monthly premiums, it’s something I will gladly pay because the alternative is literally tens of thousands of dollars in vet-related expenses. This month my pet-related expenses account for approximately 4% of my income.
The subscription category encompasses all of my digital subscriptions like iTunes, Spotify, Wall Street Journal and others. Despite this segment only accounting for .86% of my total February income, it was one of the most difficult categories to quantify when I first started a zero-based budget. I had no idea how much I was paying for Spotify or iTunes and I couldn’t even tell you the number of digital subscriptions I had! Want to know an embarrassing secret? At one point I had two HBO-Go Digital subscriptions and I didn’t even realize it! One year ago I was paying over $200 a month digital subscriptions, this month it is down to $140. In January it was $50 but I’m doing a vitamin subscription service which will cost around $90/month if I elect to keep it as an ongoing activity. Again, what’s important is not that you spend $2 or $200 a month on subscriptions, what’s important is that you’re able to quantify the number of subscriptions you have, the corresponding price, and each subscription due date!
Life is without a doubt the hardest section of a personal budget to quantify and track. “Life” encompasses everything you need to survive and thrive throughout the month. This includes gas , fun money, groceries, health-related activities, education, and others. When I first started zero-based budgeting, it took me at least 3 months to get an accurate measurement of how much I spent on food and gas. I seriously underestimated food expenses by at least $600 a month. If you’re on a budget and trying to get out of debt, “Life” is the category which represents the biggest opportunity for improvement. This is where you can slash your $2000 a month restaurant budget to $500! One year ago today I was spending well in excess of $2000 a month in groceries and restaurants! Today my groceries and restaurants in aggregate represent just $900 of my total income.
This month I decided to create a line item for both my haircut and dry cleaning. In previous budgets I let these transactions roll into my ‘fun money’ budget. I decided to make these two items its own line because they are both things I do every month. Every month I get a hair cut, and every month I do dry cleaning! If it’s an activity you pay for every month, it is by definition a recurring bill which needs to be itemized. To offset the line item increased, I’ve decreased my fun money expenses by the same amount. I’ve also added 3 new ‘one-time’ line items: Active Release Therapy (ART), Real Estate School, and Valentines. These are activities that do not recur on a monthly basis but are all things I’m doing this month so they need to be accounted for as a unique line item. ART is related to stretching and my overall wealth & well being. The real estate school is something i’ve thought about for a while and its specifically related to commercial real estate. Not sure if its something I want to do professionally, but I definitely want to explore it. Last but not least, let’s not foget valentines day fellas! All in, life represents $4,300 or 26% of this month’s budget.
Wedding is my discretionary budget which I use to ‘zero’ out my zero-based budget. Note how in other categories all of the expenses are round numbers like “$200”, “$500” and “$1000”. The wedding is not. The wedding budget (and whatever you decide to call your discretionary budget) should be the specific amount needed to get your income-expenses to equal zero. For example, my income for pay period 1st to 15th is $8,793.15. All of my expenses for that same period equal $5,370.77 as outlined below. This is the last month where i’ll have a wedding expense (yay)! With this goal complete, i’ll be able to allocate this discretionary income to my student loan debt starting in March, but for now wedding represents the largest allocation of my income, at $6,040 or 37% of this month’s earnings.
A personal budget, is personal. What works for me , may not work for you. Maybe living off of 50% of your post tax income is just out of the picture, maybe your cost of living is 3x mine. What’s important isn’t the specific numbers which go into the categories or even the individual categories. What’s important is that with a personal budget, you’re finally able to tell your money what to do and answer that life long question “Where the hell did my money go!?!” What about you? How do you manage your personal budget? Do you have any secrets to personal budgets or money management?